Turnbull to rely on state schemes he once rubbished as reckless

Anger deepens over politicisation of Energy Security Board and design of National Energy Guarantee that could reinforce dominance of incumbent utilities, stop large scale renewables, maintain status quo and fail emissions targets. But some say it does have potential.

State government anger over the federal government’s new energy plan is reaching boiling point, both because of the Coalition’s co-opting of what is supposed to be an independent board, and its decision to essentially rely on state-based renewable targets that it once derided as reckless.

The seething anger from the states is completely overshadowing the proposal for the National Energy Guarantee, not least because it cannot be implemented without their approval.

But they have been astonished by the federal government’s decision to go behind their backs, obtain a policy proposal from the newly constituted Energy Security Board – which is supposed to report to the states through the COAG energy council – and then use the ESB directors to sell the idea to media, politicians and business.

South Australia energy minister Tom Koutsantonis tweeted this week that the ESB had effectively lost its independence. ACT minister Shane Rattenbury has questioned the whole process, wondering how it fits in with the rules governing the ESB.

The creation of the ESB had been viewed as an excellent initiative. But like other promising ideas, such as the Finkel Review, and before that the clean energy scheme, the Climate Change Authority, and the renewable energy target, it has been co-opted and bastardised by a Coalition seemingly determined to destroy the renewable energy industry.

Business likes the idea of imposing reliability and environmental guarantees into the energy market, and even Bloomberg New Energy Finance described it as “elegant” and “innovative” and potentially a game changer.

But that depends on the details. Most fear that it will miss environmental, renewable and cost targets, and the return of a regulated market will simply reinforce the dominance of the major utility incumbents, and put a stop to new large-scale renewable energy projects.

Labor’s Mark Butler picked up on analysis from RenewEconomy and elsewhere over the last few days to note that the so-called National Energy Guarantee would require large-scale renewable energy projects to come to a halt, and even rooftop solar to be cut significantly.

“For Turnbull’s plan to work there would be no new large-scale renewable energy projects and a cut of at least two-thirds to current rates of rooftop solar installation,” Butler said.

That is a reaction to the numbers proposed by the ESB – 28 per cent to 36 per cent renewable share by 2030 – which appear designed to mollify the Coalition right wing, which has already forced the government to can the carbon price, reduce the renewable energy target, reject an emissions trading scheme, and dump a clean energy target.

BNEF says the renewable share could actually be 42 per cent in 2030, although this depends on so many details – such as the nature of the reliability guarantee – that are not known. It says it will only be effective with a very strong emissions target.

But many are appalled, particularly by the use of the ESB, whose members have been paraded by the federal government to argue for what is, as yet, a half-baked and ill-defined policy. As one person noted, when your organisation is majority-owned by the government, as they are, you don’t say no to a minister.

The irony is that Turnbull needs the states’ approval for the new NEG to be put into place, because rather than legislation, the scheme requires significant changes to the National Electricity Market rules.

On top of that, Turnbull’s scheme will also rely on the state-based climate and clean energy initiatives, the ones that Turnbull has repeatedly decried as “reckless”, to meet the federal government’s own modest targets.

Even the ACT scheme to reach 100 per cent renewable energy by 2020, which was designed to be “additional” – at extra cost to the consumer because the renewable energy certificates were extinguished rather than sold – will be co-opted into the national scheme.

There are also concerns about how the scheme will reinforce the power of the big utilities. First is the fact that the targets will be delivered through an opaque scheme of caps and hedges, controlled by the big utilities, and secondly because – if Turnbull is to be believed – it will effectively do away with the future market.

Turnbull told parliament that the new scheme would require physical delivery of contracts, in effect returning to a system of bilateral contracts, taking the industry back to the 1980s, delivering complete power to the big utilities, reducing competition, and making it virtually impossible for any new entrants.

“If you have big baseload generator, you are sitting quite happy right now,” said one market veteran.

James Waldren, the head of energy markets at Meridian Australia, said he was concerned by the fact that it was a market dominated by three large players controlling the majority of synchronous generation, and therefore the price of it and the majority of customers, which they will seek to protect.

“How does his new energy policy promote a good deal for the customer through retail competition if there is the potential of shutting out other electricity retailers?”

Another head of energy trading was not so diplomatic. “The general market consensus is that it is a joke,” and unlikely to survive an electoral cycle even if it did get put in place.

There is particular concern about the role of some of the members of the ESB in this plan, particularly because of the ability for the incumbent generators to retain their dominance depends on the fine details of its design.

As we wrote on Thursday, the states have been stunned that John Pierce, the conservative and techno-skeptic AEMC chair, has produced the document in less than two weeks, and has emerged as such a central player who will essentially write the rules.

Over the past decade Pierce has defended the industry’s status quo, resisting even the smallest rule changes, arguing that they all needed careful consideration and review, mostly taking months or even years. The ESB was created to try to circumvent his obstinacy.

The proposed changes to the 5-minute law, designed to favour new technologies like batteries and eliminate the price manipulation of big utilities using peaking gas generators, took more than 18 months and will not be fully introduced for five years.

Yet the most substantial changes to the NEM – proposed under the NEG – were conjured up in less than two weeks, accepted by the PM and energy minister Josh Frydenberg on the same day they were (formally) received, and will be implemented in 18 months. It beggars belief.

The states fear they have been sidelined. But it is now clear that this was a long time in the making. The big utilities just took advantage of a Coalition government which found itself with its policy pants down around its ankles (thanks to Abbott) and no Plan B, C, D or E. They struck while the iron was hot.

It is thought that key executives in several of the big three utilities also played critical roles, liasing closely with the PM department. Another closely involved is Clare Savage, the newly appointed deputy chair of the ESB. She is highly regarded, but in the past decade has only acted as a lobbyist for the big utilities – at the industry association ESAA, then with EnergyAustralia, and latterly with the Business Council of Australia.

The new concerns add to the myriad issues surrounding the proposal, as we have outlined here and here.

The emissions targets are manifestly inadequate, require greater burden on other industries, have no long-term target beyond 2030, and will likely be “back-loaded”, meaning any reductions will be sought closer to 2030 rather than now.

It will require the trading of a kind of carbon credit that will be all but invisible, because it will be hidden in energy market contracts such as caps and hedges. It hands complete control to utilities.

The system will not encourage new competition, which seems to be the least bit necessary to moderate prices, and will make it extremely hard for new retailers. It may not even send a long-term price signal necessary for energy industry because there is no target beyond 2030.

On top of that, it will also allow big retailers to source credits from international projects rather than invest in wind and solar, and worse, it appears to lock in the absurdly high prices in Australia’s grid for at least another decade.

“Regulators are not places where innovation thrives,” he told Reneweconomy. “Does Australia want to lead with innovative projects like the Kennedy energy park, or does it just want to be a regulated market.

“This just cements the market power of the three major gentailers. Regulated markets are neither efficient or very good at technology innovation, or of price reduction.

“Renewables will be part of the mix, it is just a question over the path to get there. And this is the fourth best option,” (after a carbon price, an emissions intensity scheme, and a clean energy target).

The ACT’s Rattenbury was also concerned about the nature of a regulated market: It reverses the whole policy direction of this space – which was to create targets for renewables and storage – now we have a guarantee for coal and gas. It’s a complete flip over from what we done for the last few decades.”

And, as BNEF’s Kobad Bhavnagri says, as innovative and elegant as it might be, it might only be successful if there are significant emission reduction targets (although even then it may not be able to scale).

And what chance of ambitious climate targets are there under this Coalition? Which is possibly why the Coalition has made such a mess of its presentation, putting nearly everyone offside when a little bit of thought and consultation could have been decisive.

Giles Parkinson is founder and editor of Renew Economy, and is also the founder of One Step Off The Grid and founder/editor of The Driven. Giles has been a journalist for 35 years and is a former business and deputy editor of the Australian Financial Review.

Giles Parkinson is founder and editor of Renew Economy, and is also the founder of One Step Off The Grid and founder/editor of The Driven. Giles has been a journalist for 35 years and is a former business and deputy editor of the Australian Financial Review.

34 Comments

Andy Saunders 1 year ago

“The big utilities just took advantage of a Coalition government which found itself with its policy pants down around its ankles (thanks to Abbott) and no Plan B, C, D or E. They struck while the iron was hot.”

Is it just me who is a little disturbed by the mental picture of the metaphor?

Peter Campbell 1 year ago

I think you are picturing accurately what Abbott is doing to the LNP!

MrMauricio 1 year ago

and if it were Speedos???

Joe 1 year ago

…the flouro Red please

Joe 1 year ago

From 2010 under Abbott as Opposition Leader onwards, The COALition has had plenty of time to develop a long term energy and climate policy. Togetehr with the business lobby led by The MCA and Rupert’s newsrags what did we get…repeal of Labor’s ETS and a $2.5 Billion boondoggle called ‘Direct Action’. Now as the shite hits the fan The COALition is flaying around in an almighty mess…of course everyone is to blame.

bedlambay 1 year ago

Turnbull’s centrally planned energy policy would do the Commies proud.

Ken Dyer 1 year ago

The price of coal increases with inflation therefore it will make electricity more expensive, and ultimately will make coal uneconomic to keep the turbines running 24/7. At the same time, the gold paint will start flaking off the networks making them less reliable. Given that 48% of all electricity bills are comprised of network costs, any improvements or maintenance ensures that prices will increase.

The cost of batteries is expected to drop from $1000 per KW to $100 per KW by 2020, with solar also reducing in price, making solar PV electricity very affordable.

When the cost of unsubsidised solar drops below the cost of transmission, and it getting closer daily, the coal fired power stations may as well close their doors. That is the reality, and we have already seen AGL making moves to close Liddell and now it may happen sooner rather then later. Witness also the recent response to Queensland’s open tender that attracted responses for more GW’s of power than the current coal fleet produces. Lots of stranded assets are in the pipeline.

Robert Westinghouse 1 year ago

LNP policy is obviously to impoverish people and enrich foreign corporations….Well that is what they are doing….

MaxG 1 year ago

.. and have always done, and always will. It is the core of their existence; read their strategy papers. Privatise profits and publicise costs!

Ken Dyer 1 year ago

Finally had a read of the NEG papers, and it was a very short read. The bulldust detector is now on full alert. It is exactly as Giles reports, a do nothing by the Feds except state the bleeding obvious and leave everything up to the dinosaur regulators, the greedy generators, the grasping retailers and the States who are left to push the renewables barrow. Another Neoliberal Energy Grope. And they hoped nobody would notice.

MaxG 1 year ago

Most won’t notice, because most voted these clowns in; even if there is a slight swing of 5%; there are still more than 45% voting for these clowns; which is the underlying problem.

There are professionals with 30 plus years in grid management who honestly say they have no idea how the NEG is going to evolve. I really think they wont know for another 2 years if it is going to drive or stall innovation.

Rod 1 year ago

I think you are right but when Coal is considered “dispatchable” there is something seriously rotten in the state of Denmark.

Joe 1 year ago

Did you see COALition Senator Zed Seselja on ABC’s Lateline last night (20/10 ) describing Coal as both ‘baseload’ and ‘dispatchable’…no wonder Two Tongues Turnbull & co are in a mess over their energy non policy….an 8 page ESB media release is not a policy.

Rod 1 year ago

No, the only show I watch on our ABC these days is Insiders. There must be thousands of engineers out there gobsmacked that now coal is considered dispatchable.

Calamity_Jean 1 year ago

You can call coal “dispatchable” but that doesn’t make it so. It’s like the old joke about a dog: Jokester: How many legs does a dog have if you call a tail a leg?Fool: Five. Jokester: Wrong! Only four. Calling a tail a leg doesn’t make it one.

Robert Westinghouse 1 year ago

NEG leads to more concentration of power and more exploitation of consumers by BIG Power…LNP is putting another nail into competition and allowing Big Power to gouge us again…. This is BAD deal for people. As Gran says: “Everything the Federal government does is BAD for the people and good for foreign businesses”. Tell the Federal government to hell unless they can: 1. Increase subsidiaries on PV; 2 Increase subsidiaries on Batteries; 3 Increase Feed-in tariffs. Help normal Australians first. We must tell Trunbill to go away and die.

solarguy 1 year ago

Bin the bastards at the ballot box in a little under 2yrs time, unless of course we get a bye election or two in the mean time.

Hettie 1 year ago

What a cynical exercise in utter bastardry. How to cripple the renewables industry, feather bed the fossil fuel lobby and screw over the whole electorate , in one easy lesson. The backlash will be huge. Rather a shame that the full effects will not be felt until after, or so close to the next election that the backlash will be too late. It really is beyond nauseating.

howardpatr 1 year ago

John Pierce needs to be stripped bare and his CV released to the public – a person with his alleged history of acting in the interest of the incumbent fossil fuel corporations needs to have his history revealed; not in the form of some “spin job” on a dedicated ESB website.

It seems Pierce is unlikely to have much interest or concern anthropogenic climate change but if this is not so would like to see him demonstrate otherwise.

Even if this highly-flawed plan gets through COAG and even if Turnbull can get most of the States onside (which seems unlikely), there is still the problem of legislation. When it comes to the National Energy regime, the lead legislator for uniform national laws is South Australia. The SA Parliament will rise at the end of November and won’t sit again until after the State Election on 17 March 2018. Regardless of who wins, Parliament probably won’t sit until May or more likely June 2018. So don’t expect much law-making to happen in SA until mid-2018 at the earliest. I expect to have plenty of amendments if and when it does hit the State upper house. Mark Parnell MLC, Parliamentary Leader, Greens SA

Farmer Dave 1 year ago

Good points, Mark, and I hope you do well at the State election. Would you consider amendments that wrote the Paris targets of below 2 degrees and as close as possible to 1.5 degrees into the legislation that drives AEMO and AEMC? Would giving equal weight to emissions reductions in their objectives help, do you think?

Robert Westinghouse 1 year ago

Well said Mark…what about we dump the federal government from the whole conversation and let the states do it themselves. At least we (as the people) have to convince only 1 level of idiots.. I am all for taking back power to the states. Everything the fed touch costs more and ends in a pile of excreta.

Richard 1 year ago

Turnbull seemingly has pulled off a neat trick. He can hide behind the ESB and when the states reject it he can play the blame game. Result,SNAFU and his back bench will remain happy. But his weak spine cannot get him out of this one, rather it has put him deeper in it.

Labor should call his bluff and accept the policy under the proviso of applying more aggressive targets and improving the policy. They can then shift the blame for the impending and implicit high carbon price onto Turnbull and the Libs, because after all, it was their policy! 🙂 Once the low IQ’s on the Lib back bench have figured out that the policy has an implicit carbon price that Labor will leverage, it will cause armageddon. It is probably dawning on them right about now. This will have the added benefit of keeping the Libs in a constant state of warfare, till the next election and ensuring a thumping win for Labor.

This policy is a gift for Labor, they should resist it but not reject it and grab some popcorn for the Lib implosion. Mal may not see the year out.

yahoo2 1 year ago

Well Giles, I think the time has finally come – some comparisons should be drawn between the fraudulent gaming of the Californian power system to jack the price By ENRON in the late 1990’s and the situation as it stands now in Australia.

It might be good to remind people that the half baked legislation California’s Governor signed allowed the market manipulation of imported power prices and artificial rolling blackouts to be deemed good business. Some lessons from the past might be just what we need to put things into perspective.

neroden 1 year ago

Yes, the current situation in Australia is *exactly* like Enron, and it’s the federal government’s fault.

maxlyrical 1 year ago

Poo sandwiches… You know you love em! Here’s another tantalising staple on the Turnbull menu. A veritable smorgasbord of irresistible stink, proudly sponsored by your friendly corporate raiders. Served with rancid relish and an amazing selection of tasty toppings. You’ll swoon at the fumes! For the vegan greenies we now have topoo. Send in your Mudoch voucher for the incredible Foot-Long today. Polish off some turd rolls, -or try our new piss-on toast. They buy it. You love it! Australians everywhere are rushing to slurp up all the poo this government can dish. So get on board for the sewer tour of a lifetime folks.

Complimentary smeg at all respected media outlets.

Dark green 1 year ago

Apparently Victorian Renewable Energy Target passed upper house y’day, to become law (FoE press release) – haven’t found news item or govt presser. 40% by 2025 – if true, does that mean other states may end up with less, or will LNP challenge it in court, or …? Regardless, can Dan Andrews please lend Blip Shorten a few vertebrae.

OK, so we know the states (or possibly the Senate) will kill this idiotic “plan”. Now, what’s next?

How quickly can South Australia go 100% renewable and create a “fait accompli”? How fast will large private businesses (like mines and factories and warehouses) build their own on-site power supplies and defect from the grid? How quickly can country Australia be taken off the grid and put onto on-site solar and batteries?

How fast can Western Australia, thankfully not in the NEM, go 100% renewable? How about the NT?

Mike Westerman 1 year ago

SA could be 100% within 5y, with Aurora ST, Kanmantoo PHES plus few others, more rooftop, more home batteries, current pipeline of solar and wind. Even AEMO predicts it is exporting to Vic most of the time by 2023.

RobertO 1 year ago

Hi neroden, we have not seen any real details about the NEG Plan yet, so please do not call it a plan. (i’m hopeful that it’s a pollies stunt and will not have leggs. If the High Court rules against the pollies then we may have an election based on “COALition wants to guarantee reliable, dispatchable power and Labour wants renewable power which we all know if the sun don’t shine and the wind don’t blow!”). Here a gem that I found that still current except the CCS is too costlyhttps://theconversation.com/even-under-a-conservative-government-coal-fired-electricity-has-no-future-18034